US central bank hikes by 50 basis points

The Federal Reserve has intensified its fight against the highest inflation in 40 years by raising its benchmark short-term interest rate by a half-percentage point - its most aggressive move since 2000 - and signalling further large rate hikes to come.

The increase in the Fed's key rate raised it to a range of 0.75 per cent to 1 per cent, the highest point since the pandemic struck two years ago.

The Fed also announced that it will start reducing its huge $US9 trillion ($A13 trillion) balance sheet, which consists mainly of Treasury and mortgage bonds.

Watch the latest News on Channel 7 or stream for free on 7plus >>

Those holdings more than doubled after the pandemic recession hit as the Fed bought trillions in bonds to try to hold down long-term borrowing rates.

Reducing the Fed's holdings will have the effect of further raising loan costs throughout the economy.

All told, the Fed's credit tightening will likely mean higher loan rates for many US consumers and businesses over time, including for mortgages, credit cards and car loans.

Speaking at a news conference on Wednesday, Chair Jerome Powell made clear that further large rate hikes are coming.

"There is a broad sense on the committee," he said, referring to the Fed, "that additional (half-point) increases should be on the table in the next couple of meetings."

But Powell also sought to downplay any speculation that the Fed might be considering a rate hike as high as three-quarters of a percentage point.

"A 75-basis-point hike is not something that the committee is actively considering," he said - a remark that appeared to cause US stock indexes to rise.

With prices for food, energy and consumer goods accelerating, the Fed's goal is to cool spending - and economic growth - by making it more expensive for individuals and businesses to borrow.

The central bank hopes that higher borrowing costs will slow spending enough to tame inflation yet not so much as to cause a recession.